The first quarter of 2010 saw slackening construction activities and shrinking floor space against the backdrop of growing tenant activities and lease rates. The market boasts another three shopping malls including the Rechnoy shopping and recreation centre, their overall floor space amounting to 26 thousand square meters.

Overall situation

In the first quarter of 2010 the market of retail real estate followed the trends that were typical of other segments of commercial real estate. The amount of construction work and vacancy rates diminished against increased tenant activities and lease rates. There is a continuing trend towards offer differentiation depending on a property’s quality and geographical location. There is a high demand for well-designed properties in shopping malls, as well as street retail facilities in highly-frequented areas that ensure a constant client inflow.

The global financial crisis has failed to hamper the construction of big shopping malls and smaller local facilities. Meanwhile, since it uncovered conceptual deficiencies of some shopping malls, this aspect now receives priority attention.

Increased buyer and tenant activity characterizes street retail: since early 2010 lease rates and purchasing prices for favorably located properties reached pre-crisis levels.

There is a growing demand for retail property due to the expansion of Russian and Western retailers and the emergence of new market actors. Russia’s biggest X5 Retail is launching the new shop-in-shop and the mini-Pyatorochka formats whereas the state-owned Detskiy Mir (Russian toy store chain) intends to open its first-ever discount store. Big trade operators are resuming their local activities with most market actors looking for new venues. The list of Western companies that declared expansion onto the Russian markets includes the Spanish Camper that plans to open 10 outlets in Moscow and St.Petersburg.

Supply

The first quarter of 2010 witnessed the emergence of three shopping malls: specialized shopping mall Tvoy Dom (total surface 57, 000 square meters, shopping space 26, 000 square meters), shopping and recreation centre Rechnoy (total surface 30, 000 square meters, leased surface 20, 000 square meters) and shopping mall Azovskiy (total surface 21, 715 square meters, rented area 10, 373 square meters). The total shopping area amounted to 54, 573 square meters or 20 percent of the target figures for the first quarter 2010. Compared with the first quarter 2009 the volume of construction work dropped 2.5-fold. Aggregate supply in retail realty segment totaled 3.32 mil square meters of high-quality shopping area. At the end of the first quarter 2010, the availability of quality retail surface was 316 square meters per 1000 people, which uncovers a serious shortage.

Several large shopping malls are to open their doors in late 2010, their aggregate shopping space totaling 500 thousand square meters. The two biggest shopping and recreation centers scheduled for inauguration in 2010 are Vegas and Mall of Russia. 

Demand

A lion’s share of demand for premium shopping areas is traditionally formed by big food and clothes retailers. The global financial crisis split the realty market into two segments: favorably located, successful and well designed shopping malls and facilities whose space was in high demand even at the height of the crisis (first half of 2009) and shops and stores that have not been leased until now.

In spite of the increased tenant activity in late 2009 – early 2010, overall vacancy rates dropped only by 1 percent compared with the fourth quarter of 2009, amounting to ca. 13 percent by the end of March 2010. This trend is caused by a high share of ill-conceived shopping malls that emerged in the pre-crises times. Now these properties are vacant, and there is a high possibility that they continue to stand idle in the near future in case no conceptual and/pricing solutions are found. This segment demonstrates a vacancy rate of 30 to 50 percent. This figure will also include properties that were commissioned during the crisis. Overall, most shopping malls have difficulty attracting tenants irrespective of their location or conceptual design.

In the street retail segment the demand for favorably located properties exceeds supply manifold while lease and purchasing rates have reached pre-crises levels.

Lease rates, selling prices

All through the first quarter of 2010, average lease rates remained unchanged and show the following variations depending on a tenant’s profile:

$100-300 per square meter per year for anchor tenants

$100-120 per square meter per year for recreation areas

$600-4500 per square meter per year for retail galleries

Street retail sees a widening gap in the lease rates for ill- and well-located facilities. Lease rates for facilities in highly-frequented areas may reach $8 to 40 thousand per year, with the average price under signed sale and purchase agreements reaching $10,000 per square meter.